nep-com New Economics Papers
on Industrial Competition
Issue of 2012‒07‒29
fourteen papers chosen by
Russell Pittman
US Department of Justice

  1. Endogenous Market Structures and Welfare By Federico Etro
  2. On welfare losses due to imperfect competition By Ritz, R.A.
  3. Upward Pricing Pressure in Two-Sided Markets By Affeldt, P.; Filistrucchi, L.; Klein, T.J.
  4. Coarse correlated Equilibria in Linear Duopoly Games By Indrajit Ray; Sonali Sen Gupta
  5. The "Average" Within-Sector Firm Heterogeneity in General Oligopolistic Equilibrium By Colacicco, Rudy
  6. Patents, competition and firms’ innovation incentives By Pilar Beneito; María E. Rochina-Barrachina; Amparo Sanchis
  7. The Real Effects of Hedge Fund Activism: Productivity, Risk, and Product Market Competition By Alon Brav; Wei Jiang; Hyunseob Kim
  8. Market Integration and Economic Efficiency at Conflict? Commitments in the Swedish Interconnectors Case By Sadowska, M.; Willems, Bert
  9. Can Producers Apply a Capacity Cutting Strategy to Increase Prices? The Case of the England and Wales Electricity Market By Sherzod Tashpulatov; Lubomir Lizal
  10. Bank Deposit Interest Rate Pass-through and Geographical Segmentation in Japanese Banking Markets: A panel cointegration approach (Japanese) By UCHINO Taisuke
  11. The spatial clustering of the Dutch banking sector in the Amsterdam region: the importance of spinoffs and mergers in the period 1850-1993 By Ron Boschma; Rik Wenting
  12. Optimal pricing and quality of academic journals and the ambiguous welfare effects of forced open access: a two-sided model By Mueller-Langer, Frank; Watt, Richard
  13. Competition and the Social Cost of Regulation in the Postal Sector By Martin Maegli; Christian Jaag
  14. The new purposes of the French High-speed rail system in the framework of a centralized network : a substitute to the domestic Air Transport market ? By Pierre Zembri

  1. By: Federico Etro (Department of Economics, University Of Venice Cà Foscari)
    Abstract: I characterize microfounded endogenous market structures with Bertrand and Cournot competition and perform welfare analysis generalizing the Mankiw-Whinston condition for excess entry. The impact of market leaders on welfare is reconsidered, with a number of policy implications about strategic investments, vertical contracts, bundling, mergers and more. The neutrality of consumer surplus holds only when utility is homothetic. Under quantity competition, aggressive (accommodating) leaders increase consumer surplus if the elasticity of utility is decreasing (increasing) in consumption. This provides general rules to evaluate mergers and abuse of dominance issues in antitrust policy.
    Keywords: Endogenous entry, oligopoly, welfare
    JEL: L1
    Date: 2012
  2. By: Ritz, R.A.
    Abstract: Corporate managers and executive compensation in many industries place significant emphasis on measures of firm size, such as sales revenue or market share. Such objectives have an important - yet thus far unquantifed - impact on market performance. With n symmetric firms, equilibrium welfare losses are of order 1/n4, and thus vanish extremely quickly. Welfare losses are less than 5% for many empirically relevant market structures, despite significant firm asymmetry and industry concentration. They can be estimated using only basic information on market shares. These results also apply to oligopsonistic competition (e.g., for retail bank deposits) and strategic forward trading (e.g., in restructured electricity markets).
    Keywords: Delegation, forward trading, managerial incentives, market structure, welfare losses.
    JEL: D43 D61 L13 L22 L41
    Date: 2012–07–23
  3. By: Affeldt, P.; Filistrucchi, L.; Klein, T.J. (Tilburg University, Tilburg Law and Economics Center)
    Abstract: Abstract: Pricing pressure indices have recently been proposed as alternative screening devices for horizontal mergers involving differentiated products. We extend the concept of Upward Pricing Pressure (UPP) proposed by Farrell and Shapiro (2010) to two-sided markets. Examples of such markets are the newspaper market, where the demand for advertising is related to the number of readers, and the market for online search, where advertising demand depends on the number of users. The formulas we derive are useful for screening mergers among two-sided platforms. Due to the two-sidedness they depend on four sets of diversion ratios that can either be estimated using market-level demand data or elicited in surveys. In an application, we evaluate a hypothetical merger in the Dutch daily newspaper market. Our results indicate that it is important to take the two-sidedness of the market into account when evaluating UPP.
    Keywords: Merger evaluation;two-sided markets;network effects;UPP.
    JEL: L13 L40 L82
    Date: 2012
  4. By: Indrajit Ray; Sonali Sen Gupta
    Abstract: For duopoly models, we analyse the concept of coarse correlated equilibrium using simplesymmetric devices that the players choose to commit to in equilibrium. In a linear duopoly game, we prove that Nash-centric devices, involving a sunspot structure, are simple symmetric coarse correlated equilibria. Any small unilateral perturbation from such a structure fails to be an equilibrium.
    Keywords: Duopoly, Coarse Correlation, Simple devices, Sunspots
    Date: 2012–07
  5. By: Colacicco, Rudy
    Abstract: This paper builds a general oligopolistic equilibrium model to investigate how within-sector firm heterogeneities affect wage rate, country-wide profits, and welfare. Using linear inverse demands, I consider asymmetric sectors, each involving n Cournot oligopolists producing horizontally differentiated varieties with constant, though asymmetric, costs. I link a measure of the average within-sector firm heterogeneity with the economy-wide, endogenously determined, and competitive wage rate. For interior equilibriums, the higher the "average" the lower the wage rate. Once general equilibrium feedbacks from wage rate are considered, the "average" has an unclear impact on country-wide profits and welfare, depending on moments of the technology distribution as well as demand parameters. The findings have implications to better understand antitrust and related policies.
    Keywords: Cournot Competition; General Oligopolistic Equilibrium (GOLE); Asymmetric Oligopoly; Horizontal Differentiation; Market Concentration; Antitrust
    JEL: L11 L13 D43 D51
    Date: 2012–07–21
  6. By: Pilar Beneito (University of Valencia and ERICES); María E. Rochina-Barrachina (University of Valencia and ERICES); Amparo Sanchis (University of Valencia and ERICES)
    Abstract: In this paper we analyze how industrial property rights (IPRs), measured by patents granted, affect competition at the industry level, and their induced effects on firms’ innovation incentives. We use for that purpose a panel dataset of Spanish manufacturing firms for the period 1990-2006. Using indicators of fundamentals of competitive pressure and factor analysis techniques, we construct a new synthetic measure of competition. Our results indicate that although the use of IPRs (in terms of industry patenting intensity) reduces market competition, it may also encourage firms’ innovation incentives (in terms of firms’ R&D expenditures and the number of product innovations).
    Keywords: IPRs, patents, competition, innovation
    JEL: D22 L10 L60 O31 O34
    Date: 2012–07
  7. By: Alon Brav; Wei Jiang; Hyunseob Kim
    Abstract: This paper studies the long-term effect of hedge fund activism on the productivity of target firms using plant-level information from the U.S. Census Bureau. A typical target firm improves its production efficiency within two years after activism, and this improvement is concentrated in industries with a high degree of product market competition. By following plants that were sold post-intervention, we also find that efficient capital redeployment is an important channel via which activists create value. Furthermore, our analyses demonstrate that measuring performance using the Compustat data is likely to lead to a downward bias because target firms experiencing greater improvement post-intervention are also more likely to disappear from the Compustat database. Finally, consistent with recent work in asset-pricing linking firm investment decisions and expected returns, we show how changes to target firms’ productivity are associated with a decline in systemic risk, particularly in competitive industries.
    Keywords: Hedge funds, Governance, Productivity
    JEL: G12 G23 G34
    Date: 2012–07
  8. By: Sadowska, M.; Willems, Bert (Tilburg University, Tilburg Law and Economics Center)
    Abstract: Abstract: According to the European Commission, Svenska Kraftnät, the Swedish network operator, might have violated competition rules by limiting cross-border transmission capacity to relieve congestion within Sweden. Eventually, the case was settled and Svenska Kraftnät offered commitments to address the Commission’s concerns. As an interim remedy, it committed to reduce transmission flow of electricity on internal network bottlenecks primarily by introducing national measures and by not reducing interconnection capacity. As a final remedy, Svenska Kraftnät agreed to split the Swedish market into multiple price zones. Congestion within Sweden would then be solved by adjusting the prices of those zones. We analyse the economic effects of the alleged abuse and the remedy package. We make three observations. Firstly, it might be socially optimal to reduce cross-border capacity in response to internal congestion. Hence, without an in-depth economic analysis the Commission risked preventing efficient behaviour. Secondly, the interim remedy of handling internal congestion primarily by national measures is not socially optimal, and it cannot be ruled out that it reduces overall welfare. Thirdly, even though splitting the market into price zones may improve allocative efficiency within Sweden, it does not prevent Svenska Kraftnät from potential manipulation of cross-border transmission capacity.
    Keywords: European energy markets;transmission congestion;competition policy;Article 102 TFEU;Swedish network.
    JEL: K21 K42 L43 L44 L94
    Date: 2012
  9. By: Sherzod Tashpulatov; Lubomir Lizal
    Abstract: Promoting competition among electricity producers is primarily targeted at ensuring low electricity prices for consumers. Producers could, however, withhold part of production facilities (i.e., apply a capacity cutting strategy) and thereby push more expensive production facilities to satisfy demand for electricity. This behavior could eventually lead to a higher price determined through a uniform price auction. In this paper, using the case of the England and Wales wholesale electricity market, we empirically examine whether producers can indeed apply a capacity cutting strategy. We analyze the bidding behavior of producers during high- and low-demand trading periods across trading days and find direct and indirect evidence for producers' successful manipulation of capacity bids targeted at increasing a wholesale electricity price. We also examine whether the regulatory reforms to improve competition were successful at mitigating the extent of strategic capacity manipulation.
    Keywords: capacity bids; electricity prices; uniform price auction; regulation
    JEL: D22 D44 L50 L94
    Date: 2012–07
  10. By: UCHINO Taisuke
    Abstract: This paper estimates the pass-through between market interest rates and deposit interest rates in Japan, in order to investigate whether the bank deposit markets are geographically segmented. The unique feature of this paper is to make use of monthly deposit interest rates posted by 106 regional banks from March 1999 to March 2010. Following theoretical results from a simple banking activity model with Cournot competition, I estimate the long run pass-through of each regional bank by utilizing the panel cointegration method. The empirical results of this paper show a significant negative correlation between regional market concentration and pass-through, which implies the existence of geographical market segmentation.
    Date: 2012–07
  11. By: Ron Boschma; Rik Wenting
    Abstract: There is little understanding of how clusters evolve, and where. While dynamic analyses of clusters hardly exist, this is especially true for spatial clustering of service industries. We take an evolutionary perspective to describe and explain why the Dutch banking cluster clustered in the Amsterdam region. This analysis is based on an unique database of all banks in the Netherlands that existed in the period 1850-1993, which were collected by the authors. We examine the extent to which spinoff dynamics, merger and acquisition activity and the location of Amsterdam had a significant effect on the survival rate of Dutch banks during the last 150 years. Doing so, we make a first step in providing an evolutionary explanation for why Amsterdam is the leading banking cluster of the Netherlands. Our analyses demonstrate, among other things, that Amsterdam banks were disproportionally active in acquiring other banks, leading to a further concentration of the banking sector in the Amsterdam region.
    Date: 2011–09
  12. By: Mueller-Langer, Frank; Watt, Richard
    Abstract: We analyse optimal pricing and quality of a monopolistic journal and the optimality of open access in a two-sided model. The predominant aspect of the model that determines the quality levels at which open access is optimal is the nature of the relationship between readers and authors in a journal. In contrast to previous literature, we firstly show that there exist scenarios in which open access is a feature of high-quality journals. Second, we find that removal of copyright (and thus forced open access) decreases journal profits but has ambiguous social welfare effects.
    Keywords: Open access; academic journals; two-sided market; ambiguous welfare effects of removal of copyright
    JEL: L82 L11 O34
    Date: 2012–04–25
  13. By: Martin Maegli; Christian Jaag
    Abstract: Increased direct and indirect competition in the postal sector represents a great challenge to the traditional business model of postal operators. It is often put forward that regulatory institutions need to evolve in parallel and coherently with developments in the market place in order to allow postal operators cope with these challenges. Regulatory institutions are intended to remedy market failures and reduce transaction costs. However, they also cause governance costs, including costs resulting from distorted investment and innovation, if these institutions do not respond adequately to changes in consumer preferences and technologies. This paper analyzes of the impact of regulatory institutions on investment and innovation in the postal sector.
    Keywords: Regulation, Postal market, Governance, Institutions
    JEL: L41 L52
    Date: 2012–07
  14. By: Pierre Zembri
    Abstract: The high speed rail network represents now a large part of the rail services, 4 sub-networks being concerned from/to Paris. The interoperability between high-speed trunk lines and the rest of the electrified network permits a large coverage of the French territory : the TGV services network is broader than the real high speed one. From the beginning of high-speed services in France, the main target of the TGV system has been business traffic using the domestic air transport network. The SNCF can be considered as an active player in the Air transport competition, offering low travel times, competitive prices and high capacities. The frequencies can be high between the largest towns : 16 round-trip services between Paris and Marseilles, 21 between Paris and Bordeaux, etc. The development of the TGV network creates new opportunities of competition with Air France and other carriers. That is one of the reasons of the relative weakness of competition within the domestic Air Transport sector. Air France is now planning a progressive downsizing of its domestic services on the lines where the market share of the TGV is growing. We have compared the level of service of the two carriers, according to the TGV average travel time (quite different from the real distance). Our main hypothesis is that Air France adapts its service level and its routes to the supposed state of competition. When most of the flights are oriented towards Orly airport (pure domestic market), the competition is at its advantage. When most of them are oriented to the CDG hub, the competition is over for Air France. The 'price war' has not the same intensity : air fares are higher when HST is not competitive or when the air lines are mostly used for feedering the main hub. The 'area of intense competition' is now between 150 and 300 minutes of HST average travel time, that is more than previously estimated. Most of the domestic and short-haul international routes from Paris, but also from other main towns like Marseilles or Lyon will be shortly concerned...
    Date: 2011–09

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